Coronavirus and the economy: We need green stimulus not fossil fuel bailouts

2020-03-26

Green energy can be at the heart of government stimulus plans. THE CANADIAN PRESS/Jeff McIntosh

The world is on the brink of an unprecedented economic collapse, as extreme yet necessary measures to deal with the coronavirus pandemic shutter businesses and put people out of work.

Governments in many countries, including Australia, Canada, Germany, the U.K. and the U.S., are responding with fiscal stimulus. Much of the focus has rightly been placed on boosting the health sector’s capacity to respond to the crisis and providing immediate relief for the unemployed.

This first wave of stimulus will likely be followed by further government spending, and it is not too soon to think about how that money should be allocated. As in 2008, the last time the world faced a major economic crisis, there are numerous calls for governments to take measures that will simultaneously create jobs and decarbonize the economy. A smart response to this emergency could go a long way to addressing the larger ecological crisis looming on the horizon.

Instead of a list, I propose a modified version of the “three Ts” of effective stimulus — timely, targeted and temporary — as recommended by a number of economists in 2008.

Timely, but not hasty

Individuals in dire need should receive stimulus funds as quickly as possible. This downturn, however, is predicted to last a number of years and long-term plans will be necessary.

Unfortunately, the focus on timeliness in 2008-09 meant that shovel-ready brown projects, like investments in roads, got priority over shovel-worthy green ones, like investments in renewables and battery technologies.

The haste with which governments tried to get money out the door also contributed to poor policy design. And the need for speed was used to support efforts to pare back or eliminate important regulatory processes, like environmental impact assessments.

Economic disruptions from the coronavirus pandemic and a steep drop in oil prices have economists forecasting a recession that is at least as bad as the global financial crisis.AP Photo/Craig Ruttle

In light of this, the timely criterion should be qualified. Measures should still be timely. There is, after all, as much urgency associated with addressing climate change as with any economic downturn. But timeliness should not take priority over appropriate design or compliance with regulatory frameworks that have been put in place to protect the public and the environment.

Targeted

Funds should be directed primarily to lower-income earners because they are more likely to immediately spend, creating a “multiplier effect” as businesses are, in turn, able to spend more. Economic impacts aside, there is a broader moral case to be made for addressing inequality through government investment.

Targeting low-income households also has environmental benefits. For example, low-income families often occupy homes that are the least energy efficient, but they are unable to make improvements without assistance. In other words, targeting low-income households means more environmental “bang” for each stimulus “buck.”

While we should keep this criterion, its meaning should also be expanded to take two additional issues into consideration.

First, public money should primarily be targeted to public projects, for example, public transit, community renewables projects. There may be a reasonable case for governments providing concessional loans and other assistance to private companies that are developing or commercializing clean technologies. But, as economist Mariana Mazzucato has argued, in these cases, the government should receive a return on successful investments.

Second, regions that are hardest hit by climate change, such as those prone to drought, fire or flooding, and/or the shift away from fossil fuels, such as Alberta or the Midwest, should receive more support. Here the concept of a “just transition” is helpful. In achieving this aspect of the targeted criterion, governments should ensure that unions, employees and local communities participate in the development and implementation of stimulus programs.

Transitional

In wake of the global financial crisis, most governments interpreted the “temporary” criterion to mean that all funding should be spent by a deadline, usually within a few years.

The deadlines set by governments were arbitrary and too short for some new technologies and industries to mature. Short time frames also created boom and bust scenarios for some sectors. Rather than this “crude Keynesianism,” as economist Jeffrey Sachs terms it, what we need a “consistent, planned, decade-long boost in public investments in people, technology and infrastructure.”

Instead of temporary, investments should be transitional, in place long enough to provide the certainty and stability required for new sectors to become established. Involving members of the research community in stimulus planning is one way to ensure that sensible timelines are established for new technologies.

Transitional also indicates that the aim is to steer the economy in a new direction rather than to return to a pre-crisis status quo. Stimulus measures should either provide substantial environmental benefits such as greenhouse gas emissions reductions or re-orientate the economy to low-carbon activities, such as care work and the arts.

From green stimulus to the Green New Deal

Good green stimulus should be considered the default for governments rather than a small subset of a more general category of “regular” stimulus. And bailouts to the fossil fuel industry and airlines would be monumentally counterproductive.

Investment is also only one piece of the puzzle. Much bigger structural changes to our economies are also required to tackle climate change. Luckily, we have a plan for that too. It’s called the Green New Deal.

Kyla Tienhaara receives funding from the Canada Research Chairs program.